Do you find it challenging to get over a lousy trading drawdown?
Do you rehash your trading performance over and over in your mind, beating yourself up over every bad trade?
One of the toughest parts of being a trader is how to deal with loss. It’s just a matter of time before a bad streak of trading has you emotionally on “tilt.”
Replaying mistakes in a trader’s mind is very common; it chips away at confidence and interferes with your ability to make the right decisions.
What is a drawdown?
A drawdown is measured from the peak value of equity to its lowest point over some time.
Some traders measure drawdowns by capital loss and others by duration.
How to prepare for drawdown?
During drawdowns, the typical emotional reactions are to think the market or trading edge has changed. Be prepared to react logically during bad trading drawdowns, and have faith in your trading plan.
Your emotions are telling you to change your rules, tweak your entries, and have new profit targets and exits. Don’t fall into these emotional mind games. Stick with the plan.
“Always be prepared for a larger drawdown than you have seen before.”
How to move forward after drawdown:
Focus on the next trade with optimism. Don’t dwell on mistakes or missed opportunities. Think about probabilities and trading edge.
If you want to trade your best, you need to have a short-term-memory and move from views of the past.
To move forward, see the past trades as a small part of an entire trading career. Imagine yourself reviewing your life trading metrics and refuse to let a little blip influence your current decision making.
The key is to objectively review your performance statistics – without dwelling on your current drawdown or losing trades.